Alternative Investments

Alternative Investment Funds 2021 – Finance and Banking

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1 Regulatory Framework

1.1 What legislation governs the establishment and
 operation of Alternative Investment Funds?

The establishment and operation of Alternative Investment
 Funds (“AIFs“) (and their
managers) is governed by the Federal  Act on Collective
Investment Schemes of 23 June 2006
(“CISA“,  SR 951.31) and its
implementing ordinances, the Ordinance on  Collective
Investment Schemes of 22 November 2006
(“CISO“,  SR 951.311), the
Ordinance of the Swiss Financial Market  Supervisory Authority
on Collective Investment Schemes  of 27 August 2014
(“CISO-FINMA”, SR 951.312) and the  Ordinance of the
Swiss Financial Market Supervisory Authority  on Collective
Investment Schemes of 6 December 2012
SR 951.315.2). In addition, the Federal Act  on Financial
Institutions of 15 June 2018 (“FinIA“,
SR 954.1)  and its implementing ordinance, the Ordinance on
Financial  Institutions of 6 November 2019
(“FinIO“, SR 954.11) set out  the
legal framework for financial institutions acting as fund
 management companies and investment managers of AIFs and
 their assets. Finally, the Federal Act on Financial Services
of 15  June 2018 (“FinSA“, SR
950.1) governs, among other aspects,  the sale of financial
instruments to clients in Switzerland. In addition, a number of
guidelines of the Asset Management  Association Switzerland
(“AMAS”) have been recognised as  a minimum standard
by FINMA. The AMAS self-regulation  and certain template
documents provided by the association are  currently
undergoing substantial revisions in connection with  the lapse
of transitional periods under the FinIA and FinSA as  of the
end of 2021.

Investment companies that are incorporated as a Swiss
corporation and that are either listed on a Swiss stock exchange or
 restricted to qualified investors (within the meaning of the
 CISA) do not fall within the scope of the
CISA. Accordingly,  the establishment and the operation of
such investment companies are governed by Swiss corporate law and,
in the case of  listed companies, the listing rules and any
additional regulations  of the relevant stock exchange.

1.2 Are managers or advisers to Alternative Investment
 Funds required to be licensed, authorised or regulated by
 a regulatory body?

Subject to limited e de minimis exemptions set out in
the FinIA  for asset managers of collective investment schemes
up to a  certain level of assets under management, asset
managers to  AIFs have to obtain a licence as a manager of
collective assets from FINMA prior to engaging in asset management
activities  for AIFs. The licensing requirement applies to
asset managers  of Swiss and foreign collective investment
schemes. The licence  is subject to specific licence
requirements that include, inter alia,  minimum capital
requirements and rules regarding the organisation and the operation
of the asset manager. Asset managers  who fall within the
e de minimis exemptions, however, require a  licence
as portfolio manager and are subject to the ongoing
 supervision of a FINMA approved supervisory organisation.
 Investment advisors of AIFs which provide only advisory
 activities, without any formal or de facto authority to
execute  orders, do not need a licence from FINMA.

1.3 Are Alternative Investment Funds themselves  required
to be licensed, authorised or regulated by a  regulatory

As a matter of principle, four types of vehicles are available
 to set up an alternative investment fund in Switzerland: (i)
a  contractual collective investment scheme; (ii) a corporate
collective investment scheme with variable capital (SICAV –
see question 1.4 below); (iii) a limited partnership for collective
investments; and (iv) an investment company.

Further, all Swiss AIFs require a licence from FINMA
irrespective of their organisational structure (whether established
 contractually or as a company) and the type of investors.
CISA  provides that investment companies organised as a
company  limited by shares are out of the scope of the act,
provided that  (a) all their shareholders are qualified
investors, or (b) they are  listed on a Swiss stock exchange.
Furthermore, a revision of  the CISA is currently pending that
would introduce a new type  of collective investment scheme
(the limited qualified investor  fund or
L-QIF“), which does not require any
licence if offered  exclusively to qualified investors (see
also question 7.2 below).

AIFs organised under a foreign law are subject to a licensing
 requirement only if they are offered to non-qualified
investors.  By contrast, there are no licensing requirements
for foreign AIFs  that are exclusively offered to qualified
investors. However,  Swiss rules on offering and marketing of
AIFs apply (see below  section 3).

1.4 Does the regulatory regime distinguish between
 open-ended and closed-ended Alternative Investment
 Funds (or otherwise differentiate between different
 types of funds or strategies (e.g. private equity vs. hedge))
and, if so, how?

The CISA distinguishes four different vehicles for structuring
 Swiss collective investment schemes. These are divided into
open-ended and closed-ended variants. Open-ended collective
investment schemes entitle investors to request the fund  or a
related party to redeem their units at their net asset value
 at regular intervals. Closed-ended investment schemes exclude
 this right. The CISA provides for two types of open-ended
 collective investment schemes: the contractual investment
fund;  and the investment company with variable capital
(Société d’investissement à capital
; “SICAV“). The contractual
investment  fund and the SICAV constitute two variations of
open-ended  funds and are largely interchangeable. They allow
for a broad  category of structures, ranging from securities
funds which are  based on the EU-UCITS standard, to real
estate funds, so-called  other funds for traditional
investments and so-called other  funds for alternative

Closed-ended investment schemes include limited partnerships
 for collective investments (“LPCIs“) and
investment companies  with fixed capital
(Société d’investissement à capital
; “SICAFs“).  The SICAF
and the LPCI do not share many commonalties other  than being
closed-ended structures: the SICAF is an investment  company
organised as a company limited by shares which is open  to
retail investors, whereas the LPCI is a special form of limited
 partnership reserved to qualified investors.

The contractual investment fund, the SICAV and the SICAF
 can be used for any generally permissible investment
strategy.  Typically, open-ended AIFs will be set up as
“other funds for  alternative investments”, which
provide the broadest flexibility  in terms of permitted
investments. However, depending on the  strategy, an
investment fund or a SICAV can be set up as another  fund for
traditional investments or even a securities fund if it  can
meet the demanding restrictions applicable to UCITS.

By contrast, the LPCI is conceived primarily as a vehicle for
 investments in venture capital, private equity and
construction,  real estate and infrastructure as well as
alternative investments.

1.5 What does the authorisation process involve and  how
long does the process typically take?

The authorisation process for Swiss AIFs, fund management
 companies or managers of collective assets usually starts
with a  preliminary discussion with FINMA. Based on the
outcome of  such discussion, a licence application will be
prepared and filed.  The applicant has to demonstrate that it
complies with the regulatory requirements and explain its business
model and investment  strategy.

When seeking a licence as a fund management company or
 manager of collective assets, the applicant will need to
appoint  a regulatory auditor to review its application and
provide an  assessment to FINMA. Later, the applicant has to
appoint  another recognised audit firm as its regulatory

The duration of the authorisation process varies and depends
 in particular on the complexity and the scope of the
application, the applicable investment strategies, and also on the
organisation of the applicant. FINMA seeks to approve AIFs that
 are open to all investors within a deadline of eight weeks
and  AIFs that are only open to qualified investors within a
deadline  of four weeks. These deadlines start once FINMA
receives a  complete filing and are merely indicative. No
deadlines exist to  authorise fund management companies or
managers of collective assets. However, FINMA will usually take
four to six  months to process an application based on a
complete submission (including the report of the licence
application auditor).

Foreign AIFs are not subject to a licensing process. However,
 if they are offered to non-qualified investors, FINMA must
 authorise them: FINMA will grant the authorisation if the
 following conditions are satisfied: (i) the collective
investment  scheme, the fund management company or the fund
company, the asset manager as well as the custodian, are subject to
public  supervision intended to protect investors; (ii) the
regulatory  framework regarding the organisation of the fund
management company, the fund company and the custodian, the rights
 granted to investors and investment policy are equivalent to
the  framework set forth by the CISA; (iii) the designation of
the  collective investment scheme does not give reason for
deception and confusion; (iv) the fund has appointed a Swiss
representative and Swiss paying agent; and (v) FINMA and the
 foreign supervisory authorities have entered into an
agreement  on the co-operation and exchange of information
regarding the  offering of the fund.

As a practical matter, over the last decade, FINMA has only
 authorised UCITS for the offering in Switzerland. Existing
 foreign AIFs maintained their authorisation and can continue
 to be offered to the public. However, no new foreign AIF was
 authorised for offering to all investors.

There are no licensing requirements for foreign AIFs that are
 exclusively offered to qualified investors. However, Swiss
rules  on offering and marketing apply (see section 3

1.6 Are there local residence or other local qualification
 or substance requirements?

Swiss AIFs must be administered, i.e. have their place of
effective  management, in Switzerland. Consequently, the
ultimate supervision of the AIF must be carried out in Switzerland.
However, the  investment decisions may be delegated to third
parties, including  those domiciled outside of Switzerland.
Such persons need  to be supervised by a recognised
supervisory authority, which  entered into a co-operation
agreement with FINMA, whenever  such jurisdictions condition
the delegation to managers in third  countries on the
existence of co-operation agreements. This is  typically the
case for EU Member States under the Directive on  Alternative
Investment Fund Managers (“AIFMD“).

The members of the executive board of Swiss fund management
companies or Swiss managers of collective assets must  reside
in a place which allows them to ensure the proper  management
of the business operations. Practically speaking,  this means
that they must reside in Switzerland or in the neighbouring

Furthermore, the members of the board of directors and senior
 management must meet fit-and-proper requirements and possess
 adequate professional qualifications. These requirements are
 construed broadly and will generally be examined on a
case-bycase basis.

1.7 What service providers are required?

Fund management companies, SICAVs, SICAFs and LPCIs  must
appoint a regulatory auditor, which acts as an extension of
 FINMA by carrying out most on-site audits and reporting on a
 recurring basis to FINMA.

Open-ended Swiss AIFs are required to appoint a custodian.
 The custodian must be a Swiss bank. AIFs may, subject to the
 approval of FINMA, also appoint a prime broker. If the prime
 broker is a licensed Swiss securities firm or a Swiss bank, a
separate custodian is not required. Foreign AIFs that are offered
or, more broadly, marketed in  Switzerland, are required to
appoint a Swiss representative and  a Swiss paying agent,
unless the offering or marketing is strictly  limited to
qualified investors who are not high-net-worth individuals or
private investment structures set up for them who opted  to be
treated as professional clients under the FinSA (i.e. only to
 “per se” qualified investors and not
“elective” qualified investors) Marketing foreign AIFs to
per se professional investors (such as  banks, securities
firms, insurance companies or Swiss-licensed  fund management
companies or managers of collective assets,  pension funds
with a professional treasury, undertakings with a
 professional treasury) as well as to retail clients who
entered into  a long-term investment advisory or an asset
management agreement with a regulated financial intermediary in
Switzerland or a  foreign financial intermediary subject to
equivalent prudential  supervision would not trigger the
requirement to appoint a Swiss  representative and a Swiss
paying agent.

1.8 What rules apply to foreign managers or advisers
 wishing to manage, advise, or otherwise operate funds
 domiciled in your jurisdiction?

Foreign managers or advisers cannot act as fund managers
 of Swiss funds or Swiss AIFs. However, Swiss fund management
companies, SICAVs, Swiss managers of collective assets or
 Swiss representatives of foreign collective investment
schemes  may delegate certain fund administration activities
and the asset  management function to foreign asset managers
who are supervised by a recognised supervisory authority. The tasks
delegated to third parties must be set out in written
 agreements, which have to precisely describe the delegated
tasks,  powers and responsibilities, authority to further
delegate any tasks,  reporting duties and inspection rights.
The delegation should not  prevent the audit company from
auditing or FINMA from supervising the activities of the AIF or the
AIFM. In particular, where  tasks are delegated to foreign
managers, the Swiss regulated entity  must be able to
demonstrate that the regulatory auditors, FINMA  and itself
are able to exercise their inspection rights and enforce  them
if necessary. The regulatory auditors must review the documentation
before outsourcing takes place.

1.9 What relevant co-operation or information  sharing
agreements have been entered into with other  governments or

In December 2012, FINMA entered into a co-operation
 arrangement with the EU securities regulators (represented by
 the European regulator ESMA) for the supervision of AIFs,
 including hedge funds, private equity and real estate funds.
 The co-operation arrangements include the exchange of
information, cross-border on-site visits and mutual assistance in
the  enforcement of the respective supervisory laws. This
co-operation arrangement applies to Swiss AIFMs that manage or
market  AIFs in the EU and to EU AIFMs that manage or market
AIFs  in Switzerland. The agreement also covers co-operation
in the  cross-border supervision of depositaries and delegates
of AIFMs. In addition, with respect to the offering of foreign
collective investment schemes to non-qualified investors, FINMA
 has entered into various agreements regarding co-operation
and  the exchange of information. As of 29 April 2020, FINMA
had  entered into such agreements with the supervisory
authorities of  Austria, Belgium, Denmark, Estonia, France,
Germany, Guernsey,  Hong Kong, Ireland, Jersey, Liechtenstein,
Luxembourg, Malta,  the Netherlands, Norway, Sweden and the
United Kingdom.


Originally published by International Comparative Legal
Guides (ICLG), Ninth edition, Switzerland Q&A Chapter, p.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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